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Good streak of UF bonds would come to an end: Chile Fixed Income

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(Bloomberg) — Recent gains for Chilean UF bonds could soon come to a halt as the market begins to scale back price expectations that analysts say have gone too far.

UF Treasury bonds maturing in 2026 and 2030 rose in the last three weeks as the Russian invasion of Ukraine due to a rebound in commodity prices pushed their yields down some 70 basis points to 1.4% and the 1.6%, respectively.

The rebound has gone too far, according to Marco Gallardo, subcommitted to fixed income at BICE Inversiones. Although inflation came in below analysts’ projections in February, forwards continue to discount that the annual price increase will hit a maximum of 10.8% in August, the fastest pace since 1994. years is at 7.7%, according to dates from SIF ICAP and Risk America. Meanwhile, the economists surveyed by the central bank see it at 3.7% within 23 months.

“UF rates will probably rise in the coming weeks considering that medium-term market inflation expectations, contained in asset prices, are at highs that contrast with economists’ expectations,” Gallardo said.

Consumer prices rose 0.3% from a month earlier, less than half analysts’ expectations. It was the first time since June that inflation came in below projections.

energy punch

Russia’s war in Ukraine has pushed oil prices to their highest level in more than a decade, boosting expectations for local consumer prices.

Rising costs of raw materials, particularly energy, will start to feed into inflation in the coming months, according to Milenko Mitrovic, research manager at Octogone. “That’s why breakevens continue to trend up,” he said.

But the impact of rising commodity prices may not be as severe as asset-implied inflation anticipates. Likewise, concerns about rising debt levels with the inauguration of a new leftist government will prevent UF bond yields from falling much further.

“Structural factors in the Chilean economy were advised, related to lower potential growth, higher public debt and weakening of the capital market due to withdrawals from pension funds last year, which would limit the possibility of further rate cuts,” said Sergio Lehmann, chief economist at Banco de Credito e Inversiones in Santiago.

bonds in pesos

Unlike UF bonds, nominal bonds have accumulated losses in the last three weeks. Treasury bond yields due in 2026 rose 45 basis points, while those on securities due in 2030 rose 14 points.

Several banks have taken advantage of the lower rates to issue bonds in the local market, which has long been dry for corporate sales. In fact, no companies — except financial firms — have issued bonds locally this year. Last week, Banco Consorcio and Scotiabank sold debt, according to data from the Chilean regulator’s website. The previous week, debt sales by banks exceeded 7 million UF.

SCHEDULE

  • In Chile:

  • International:

    • USA.:

      • March 15: IPP demand Feb.

      • March 15: Empire State Manufacturing Survey March

      • March 16: Retail Sales Feb.

      • March 16: Rate Decision

      • March 17: Industrial production Feb.

    • China:

    • Eurozone:

RECIPIENT NOTICES

  • Boric assumes the presidency of Chile; He promises to redistribute wealth

  • Main movements in the Latin American bond market

  • Latam Airlines previously operated 67% of its capacity in March

  • Latin America CPIs in 2022 will be about 1% higher due to Ukraine

  • Latin American currencies lead global performance in 2022

  • Chile economists forecast key rate will rise to 7.00%

  • Mercado puts all the chips in the new chief of the Treasury in Chile

  • Rejection of mining threatens climate efforts: Minister Chile

  • Radical proposals must change to defy Convention Chile

  • Less than half of Chileans would support Constitution: Survey

  • Autonomy Chilean Central Bank advances in convention committee

  • IPC Chile rises below estimates for the first time since June (1)

  • SMU prepares 10-year UF2m bond sale in Chile: Feller

  • Chile backs down on radical proposals: Synthesis Convention

  • Chile Trade Surplus USD$121m Feb.; est.- $362m

  • Chile nominal wages rise 7.5% YoY in January

BOND PIPELINE:

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